The new financial year is coming around quickly and with it comes the chance to invest up to £20,000 in a Stocks and Shares ISA. So I’ve been figuring out what I want to do.
In previous years, my plan’s been simple. But some things have changed over the last 12 months, so should I take a different approach in the year ahead?
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Strategy
Until this year, my strategy has been to limit my Stocks and Shares ISA deposits to £16,000. The remaining £4,000 has been invested in my Lifetime ISA where I own one stock.
The stock’s Berkshire Hathaway (NYSE:BRK.B). There are a few reasons I’ve chosen it as the starting point for my investing each year, one of which is its diverse range of subsidiaries.
This offers the kind of diversification that comes with an index fund, but with an advantage. Berkshire’s subsidiaries are very well resourced as a result of the firm’s balance sheet.
The company’s emphasis on long-term value and financial strength means I think it has a great chance of being around 50 years from now. And that’s the main thing I’m looking for.
Warren Buffett
As virtually everyone knows, billionaire investor Warren Buffett retired as Berkshire Hathaway CEO at the start of the year. And that’s why I’ve been thinking about whether to keep buying the stock this year.
Running a company with £370bn in cash and cash equivalents isn’t an easy task. And new CEO Greg Abel made this point in his letter to investors while reporting a recent acquisition.
Berkshire recently acquired pest control business Bell Laboratories. The firm’s happy with the deal, but Abel said he wished it could have been 10 times bigger.
This highlights one of the biggest challenges for the firm. There are small opportunities, but can Berkshire find one big enough to make a meaningful impression on $370bn?
Outlook
One thing I think is going unnoticed is the prospect of Berkshire repurchasing Buffett’s shares. And Abel acknowledged the possibility of this in the letter. At today’s prices, Buffett’s stake is worth about $160bn. That’s not enough to account for the whole $370bn, but it could use a lot of it in a way that benefits current shareholders.
Buying back Buffett’s shares would bring the share count by around 16%. That by itself would likely cause earnings per share to go significantly higher even without growth elsewhere.
On top of this, the firm does need major cash reserves for its insurance division. Having these helps turn the danger of a major liability from an existential threat to an unfortunate event.
What should I do?
Unless something major happens in the stock market before 5 April, I’ll be doing what I usually do in the new financial year. I’ll buy Berkshire shares and then figure out what else to do.
I think investors wondering why the company has so much cash might be about to get their answer soon. And I expect this to have a big impact on the business and the share price.
That means I’ll be looking to limit my Stocks and Shares ISA to £16,000 rather than £20,000. But there’s plenty investors can get done with those sums.
